Making sense of market moves
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The labor market heard everyone calling it weak and decided to prove the haters wrong.
- The US added 256,000 jobs in December—far ahead of economists’ expectations of 153,000 jobs, and well above the 212,000 added in November, according to the Labor Department.
- And that wasn’t all: The unemployment rate dipped to 4.1%, about one-tenth of a point below expectations.
- Wages steadily grew, too. Average hourly earnings increased 0.3% last month, meeting Wall Street’s expectations.
The numbers are great news for the economy and the many Americans who’ve spent hours painfully scrolling through Indeed over the past few years. Lower unemployment means that hiring is continuing to rise, even in the face of sticky inflation and geopolitical upheaval.
But you might not get good news vibes looking at the sea of red across major indexes today.
Good news for the economy is bad news for stocks
Stocks plunged and bond yields soared in reaction to today’s piping hot labor report.
While a resilient labor market is great news for job hunters, it means that the Federal Reserve is unlikely to cut interest rates at its meeting later this month, given that central bankers don’t want to stimulate the economy too much and reignite inflation.
What the pros are saying: “Although the stock market doesn’t need lower rates in order to go higher, lower rates are a tailwind for equities and, more importantly, a Federal Reserve bank that is easing policy is always a better environment for equity investors than one where they are tightening policy (or leaving policy unchanged),” wrote Chief Investment Officer for Northlight Asset Management Chris Zaccarelli in a note today.
The latest market decline is another reminder that investors perhaps got a little overzealous about the Fed’s first few rate cuts. “Markets are their own worst enemy when it comes to policy moves by the Federal Reserve,” explained Managing Partner for Harris Financial Group Jamie Cox. “Markets tried to front run the Fed on the level of interest rates and are now paying the price.”
While investors may be grimacing, Federal Reserve Chair Jerome Powell is probably smiling (not that we’ve ever seen him exhibit joy ourselves)— the resoundingly hot data means his soft landing is on track, and should make his next rate cut decision a little easier.—LB